Happy Easter! US Interest To Hit $1.6 Trillion By Year End, Making It The Largest US Government Outlay (Endless Wars And Exploding Entitlements Now Over $214 TRILLION)

Happy Easter! I mean Happy TRADITIONAL Easter, not a Biden weird trans celebration.

Biden and Congress (Schumer, Johnson, McConnell, etc) spend and borrow like its cottage cheese.

After hitting $1 trillion in late 2023, interest expense on US debt rose to a record $1.1 trillion in late March, and ii) while US debt is now rising at a pace of $1 trillion every 3 months, US interest expense is rising at a just as torrid $100 billion every 4 months (this interval will also shrink to three months very soon).

he Biggest Picture: $1.1tn in interest payments on US government debt past 12 months, doubled since COVID (Chart 2); trend in govt spending (up 9% YoY) & debt (up $1.0tn every 100 days)…big motivation for Fed to cut rates to constrain surge in interest costs (“ICC” or Interest Cost Control policy)… bear in bonds (if no recession), steeper yield curve, weaker US$, higher commodities/gold/crypto & TINA for stocks.

Of course, since Hartnett is one of those good strategists where one fact opens up a cascade of downstream observations, that’s precisely what happened this time and he fills out the balance of his latest report (available to pro subscribers in the usual place) with his tongue-in-cheek notes on why the US is on a doomsday date with a debt disaster, starting with why being a “dove means never having to say you’re sorry”:

• US government spending past 5 months = $2.7tn, up 9% YoY… on course for $6.7tn in FY24; US national debt rising $1tn every 100 days…set to hit $35tn in May’24, $37tn by US election, $40tn in H2’25 (doubling in 8 years); spending up, deficits up (9% of GDP average past 4 years), debt up -> interest payments up = $1.1tn in past 12 months & set to rise by $150bn in next 100 days [ZH: this sounds familiar]
• US Treasury has aggressively shifted refunding toward <1-year T-Bills ($21tn issuance past 12 months), lowering maturity of debt to ≈5 years, increasing sensitivity to short rates, incentivizing Fed to cut rates;

And the punchline: Hartnett takes our observations, and expands them to their logical, if absurd, extreme (which ironically takes places in just 9 months) to find that US annual interest costs are set to jump from $1.1 trillion to $1.6 trillion, which is a big deal…

• Unchanged rates/yields & debt trend next 12 months & US refinancing rate is 4.4% & annual interest costs jump from $1.1tn to $1.6tn (Chart 5); in contrast 150bps of Fed cuts next 12 months and average refi rate is 3.2%, stabilizing/constraining interest payments to $1.2-1.3tn over next 2 years; call it “ICC”/Interest Cost Control but Fed must placate fiscal excess coming quarters…bear in bonds (if no recession), steeper yield curve, weaker US$, higher commodities/gold/crypto & TINA for stocks.

… because if the Fed does not cut rate by 150bps (as it may in an “ICC” scenario) should inflation prove to be sticky (something which Putin clearly has figured out realizing the fate of Biden’s re-election is in his oily hands), and total interest does rise to $1.6 trillion by year-end, that it will become the single biggest US government outlay by the end of the fiscal year; as a reminder, in fiscal 2023, Social Security spending was $1.354 trillion, Health was $889 billion, Medicare $848 and national defense, a paltry (by comparison) $821 billion.

Stepping briefly away from the looming US debt disaster, Hartnett makes three more observations on the current state of the market:

• Tech regulation getting noisier:  DoJ vs Apple antitrust lawsuit, FTC vs Amazon antitrust lawsuit, FTC inquiry into AI deals of Amazon, Google, Microsoft; EU investigation into Apple, Meta, Google breach of Digital Markets Act; EU $2bn Apple antitrust fine, Japan FTC Apple & Google antitrust complaint et al…
• “Magnificent 7” = 30% of SPX index & 60% of SPX gains past 12 months…investors love big tech “moats”, monopolistic ability to protect margins, market share, pricing power, finance & control AI arms race; but ≈$2tn of Magnificent 7 revenues past 12 months tempting target for regulators/governments struggling to pay bills;

• Note tech historically the least regulated of sectors (the chart below uses data from 2017) and in past 12 months average tax rate of “Magnificent 7” was 15% vs 21% for rest of S&P 500… and regulation & rates the historic way sector bulls & bubbles end.

Now for the REALLY bad news. Unfunded liabilities (entitlements) have hit $214+ TRILLION. Given how voters hate paying more in taxes, look for the growing entitlements to add AT LEAST $214 trillion in NEW DEBT which will result in record high interest payments.

Hey big spender! How about NOT spending trilliions while pocketing 10% from foreign enemies?

Congress and The Biden Regime should select the now defunct British beer Watney’s Red Barrell (a truly awful beer) to symbolize their committment (or lack thereof) to fiscal responsibilty.